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The Determinants of U. S. State Economic Growth: A Less Extreme Bounds Analysis

This study investigates U.S. state economic growth from 1970-1999. I innovate on previous studies by developing a new approach for addressing "model uncertainty" issues associated with estimating growth equations. My approach borrows from the "extreme bounds analysis" (EBA) approach of Leamer (1985), while also addressing concerns raised by Granger and Uhlig (1990), Salai-Martin (1997) and others that not all specifications are equally likely to be true. I then apply this approach to identify "robust" determinants of state economic growth. My analysis confirms the importance of productivity characteristics of the labor force and industrial composition of a state's economy. I also find that policy variables such as (i) size and structure of government and (ii) taxation are "robust" and economically important determinants of state economic growth.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/0605.pdf
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Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 06/05.

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Length: 51 pages
Date of creation: 02 Feb 2006
Date of revision:
Handle: RePEc:cbt:econwp:06/05
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Web page: http://www.econ.canterbury.ac.nz

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  2. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
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  8. David F. Hendry & Hans-Martin Krolzig, 2004. "We Ran One Regression," Economics Papers 2004-W17, Economics Group, Nuffield College, University of Oxford.
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  11. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, June.
  12. Demekas, Dimitri G & Kontolemis, Zenon G, 2000. " Government Employment and Wages and Labour Market Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(3), pages 391-415, July.
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  18. van der Ploeg, Frederick, 2005. "Rolling Back the Public Sector - Differential Effects on Unemployment, Investment and Growth," CEPR Discussion Papers 4896, C.E.P.R. Discussion Papers.
  19. Xie, Danyang & Zou, Heng-fu & Davoodi, Hamid, 1999. "Fiscal Decentralization and Economic Growth in the United States," Journal of Urban Economics, Elsevier, vol. 45(2), pages 228-239, March.
  20. Gelb, A & Knight, John B & Sabot, R H, 1991. "Public Sector Employment, Rent Seeking and Economic Growth," Economic Journal, Royal Economic Society, vol. 101(408), pages 1186-99, September.
  21. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
  22. Clive W. J. Granger & Harald F. Uhlig, 1988. "Reasonable extreme bounds analysis," Discussion Paper / Institute for Empirical Macroeconomics 2, Federal Reserve Bank of Minneapolis.
  23. Akai, Nobuo & Sakata, Masayo, 2002. "Fiscal decentralization contributes to economic growth: evidence from state-level cross-section data for the United States," Journal of Urban Economics, Elsevier, vol. 52(1), pages 93-108, July.
  24. Yamarik, Steven, 2000. "Can tax policy help explain state-level macroeconomic growth?," Economics Letters, Elsevier, vol. 68(2), pages 211-215, August.
  25. Lee, Young & Gordon, Roger H., 2005. "Tax structure and economic growth," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1027-1043, June.
  26. Kevin D. Hoover & Stephen J. Perez, 2004. "Truth and Robustness in Cross-country Growth Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(5), pages 765-798, December.
  27. Garcia-Mila, Teresa & McGuire, Therese J., 1992. "The contribution of publicly provided inputs to states' economies," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 229-241, June.
  28. McAleer, Michael & Pagan, Adrian, 1985. "What Will Take the Con Out of Econometrics?," CEPR Discussion Papers 39, C.E.P.R. Discussion Papers.
  29. Mofidi, Alaeddin & Stone, Joe A, 1990. "Do State and Local Taxes Affect Economic Growth?," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 686-91, November.
  30. Crain, W Mark & Lee, Katherine J, 1999. "Economic Growth Regressions for the American States: A Sensitivity Analysis," Economic Inquiry, Western Economic Association International, vol. 37(2), pages 242-57, April.
  31. Holtz-Eakin, Douglas, 1993. "Solow and States: Capital Accumulation, Productivity, and Economic Growth," National Tax Journal, National Tax Association, vol. 46(4), pages 425-39, December.
  32. Gilligan, Thomas W & Matsusaka, John G, 1995. "Deviations from Constituent Interests: The Role of Legislative Structure and Political Parties in the States," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 383-401, July.
  33. Mullen, John K. & Williams, Martin, 1994. "Marginal tax rates and state economic growth," Regional Science and Urban Economics, Elsevier, vol. 24(6), pages 687-705, December.
  34. Mark D. Partridge & Dan S. Rickman, 1996. "The Role Of Industry Structure, Costs, And Economic Spillovers In Determining State Employment Growth Rates," The Review of Regional Studies, Southern Regional Science Association, vol. 26(3), pages 235-264, Winter.
  35. Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 259-276, September.
  36. Reed, W. Robert, 2006. "Democrats, republicans, and taxes: Evidence that political parties matter," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 725-750, May.
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